Introduction to Business Economics

• Meaning and definitions of business economics
• Characteristics and Nature of Business Economics
• Importance of economics in business management
• The subject matter of business economics
• Scope of Business Economics
• Difference between economics and business economics ,

Economics is a social science in which the same activities of human beings are studied. Is related to earning money and spending money. New methods and concepts of economics were used to solve the managerial problems of business units. This led to the development of a new subject business economics. Successful operation of human activities Some rules and regulations of theoretical economics have been made for this.

According to Joel Dean, “Business The purpose of economics is to explain how economic analysis can be used to determine business policies. ,

In the words of W. W. Haynes, “Business economics is economics applied to decision-making. It is a specialized branch of economics which bridges the gap between abstract theory and managerial practice. It focuses on the clarification of problems, organization of information and Gives more importance to the use of tools of economic analysis than to evaluation and alternative practices.” From the study of the above definitions, it can be said that business economics is that branch of knowledge in which the principles of economic analysis are applied to solve the problems of business management. And it is used for policy making.

1. Firm Theory – In business economics, all those economic theories, concepts and models are studied which we call as ‘firm theory’ or ‘economics of the firm’. It also gives an explanation of the profit principle. Which is a part of the distribution theory of economics. In this, other principles of distribution are not studied. Profit theory is studied in this because one of the important objectives of the firm is to earn profit. The only objective of the initial firm was to maximize profit. But now this ideology has changed. Nevertheless earning profit or earning satisfactory profit is one of the objectives of the firm.
2. Microeconomic nature – The nature of business economics is microeconomic because the unit of study in it is a firm like microeconomics. In this, the problems of a particular firm are studied. In this the whole economy is not studied. In this even the actions of a person are not studied, only the business firm is studied.
3. Descriptive economics instead of descriptive – The nature of business economics is not descriptive economics but deterministic economics. It is a matter of determining the various variables rather than describing them. Different types of rules are rendered in economic theory; But the decision of right and wrong is not taken about them. In business economics, decisions are made about the relationships found between different variables. For example, the law of demand of economic theory is studied, then it is told that demand decreases when price increases and demand increases when price decreases, but here it is not considered that this demand for the firm Has changed whether it is good or bad. But in business economics it is determined whether the outcome is good or bad for the firm. Business economist explains the good and bad effects of various decisions on the firm. Therefore, business economics is not a theoretical subject but a subject of practical utility.
4. Macroeconomics is also useful – Broad or macroeconomics is also useful for business economics; Because its knowledge helps in intelligently understanding the environment in which a business firm operates. Knowledge of macroeconomics enables business managers to adjust their business to those external forces in the best possible way. over which the managers have no control but are of decisive importance in the welfare of their business. Tax policy, industrial policy, foreign trade policy, labor policy, national income analysis and business cycle etc. are prominent in such important external forces.
5. Prescriptive nature – The nature of business economics is prescriptive. It dictates what to do and what not to do. For example, the law of demand indicates increase and decrease in demand due to increase and decrease in price. This rule does not explain whether it is good or bad, but in business economics, seeing the effect of decrease in demand due to increase in price or increase in demand due to decrease in price, necessary instructions are given to the firm that the firm should increase the price. Want or not Therefore, the nature of business economics is prescriptive.
6. It is both a science and an art – Business economics is used as a systematic knowledge, hence it is a science. A method is told in it to achieve reality, so it is also an art.
7. Decision making at various managerial levels – Business economics is a practical subject and its main purpose and strategy is to help the management in determination and future planning. The real decisions have to be taken by the managers themselves at different levels of management. It helps the managers in taking decisions.
8. Synergistic nature – Business economics harmonizes the theoretical and practical aspects of micro and macroeconomic analysis. It has the quality of giving practical form to economic principles. It provides business managers with theoretical and practical solutions to the economic problems of business.

1. Helpful in organization – On the basis of business management, business manager can know what, how, how much, for whom, when and how to produce? On the basis of this information, he becomes successful in creating a more useful organization for the firm.
2. Helpful in decision-making – Based on the knowledge of business economics, the business manager can decide where to establish the institution? It is helpful in determining what type of production work the organization should do, how the production technology should be, how to determine the price of the item, how to control the cost so that profit can be maximized, etc.
3. Helpful in planning – On the basis of the above information, the manager becomes successful in preparing an effective plan for the successful operation of the institution. He can prepare a plan for the collection of resources and their economical use.
4. Helpful in establishing coordination – Business economics establishes coordination between traditional theoretical concepts and actual business practice and conditions. Some models are made in economic analysis and these models are based on some assumptions. On the basis of these models, some conclusions are drawn regarding the behavior of the firm.
5. Helpful in communication – Proper communication is essential for the success of a business organization. Communication includes sending and receiving information and messages, receiving reports etc. The efficiency of the employees can be increased by proper communication of organization’s planning, work results, orders, messages etc. by the manager. The study of economics helps in communication work.
6. Helpful in forecasting – Forecasting is an important function of the manager. With the help of business economics, the manager can make predictions about the demand, price, position of competition in the market, cost, profit and actions of competing firms, etc. Such forecasts are useful in minimizing the uncertainty and risk of the firm. The manager can prepare his strategy on the basis of these forecasts.
7. Helpful in Understanding the External Environment – Business economics guides the business manager to adjust the external environment in which a firm has to function. With the knowledge of external forces, the firm can make its strategy by doing tax policy, price policy etc.
8. Helpful in reducing uncertainties – Economic principles also help managers in forecasting with their probabilities in the form of economic quantities and numbers. As we all know that generally every business manager has to work in an environment of uncertainties, so he needs future forecasts so that he can make decisions and make future plans based on the data of future forecasts. Managerial economist forecasts future demand, price, cost, capital, profit, etc. with their probabilities in numerical form. These forecasts are important for managerial decisions and help in reducing uncertainties.
9. Helpful in cost control – Business economics is very useful in keeping the costs under control to earn proper profit. There is a difference between various concepts in accounting and economics. Business economics narrows the gap between these financial and economic concepts so that the cost and profit figures obtained from the accounts of the business firm can be used more usefully for managerial decisions and future planning.
10. Helpful in future planning – Business economics helps the business manager to use economic quantities in future planning and decision making and in determining business policy. On the basis of future forecasts, the business manager decides his policy regarding future profit, price, cost, capital etc. and chooses the appropriate option from the available options.

Business economics being related to the theory of the firm, it analyzes the functions related to the operation of the business firm in the form of micro economics. Organization, planning, control, direction and revaluation come under the subject matter of business economics.

1. Planning – Managers have to plan to achieve the definite objectives of the firm.
2. Organization – By creating a harmonious combination between various means of production (land, capital, labour, management and courage) to maximize production at minimum cost so that the profit of the firm can also be maximized. This is possible only with proper organization by the managers.
3. Direction – Managers have to give direction from time to time according to the changing circumstances after planning and organization.
4. Control – whether the plans are being implemented according to the instructions or not, the managers do this work under control, in this production control, financial control, quality control, cost control etc. are taken support.
5. Revaluation – Revaluation in business economics helps in future planning and operations in finding the reasons for the difference between forecasts and actuals.

The scope of business economics is very wide; Because it includes all those economic principles, concepts, models and methods, which help the managers of business firms in decision making and future planning. Its areas of work are as follows,

1. Demand analysis and forecasting – A business firm works to convert the means of production into such items that can be sold in the market for money. The firm operates on the basis of effective forecasts in an environment of uncertainty. Managerial decisions depend on accurate estimates of demand. Before determining the production schedules of the firm and using the means of production for the production work, it is very necessary for the managers to make correct predictions of future sales. Future sales forecasts guide the managers of the firm in maintaining, strengthening or increasing the firm’s position in the market. Demand analysis and forecasting are helpful in managerial decision making and future planning. Under demand analysis and forecasting, it is studied that what is the average demand of a firm’s commodity in the market at present, what factors affect this demand, what are the substitutes of the commodity available in the market. And what will be the future demand of the particular item.
2. Capital Management – Business firms have to invest capital from time to time. On the one hand, there is a question of huge amounts in the decisions related to capital investment and on the other hand it is very difficult to reverse the decisions once they have been invested. These decisions are taken at the highest level only. Capital management is very important in business economics. It includes cost of capital, return on capital and selection of suitable projects from among various projects.
3. Price Policies and Practices – Price is an input for the firm. Therefore, determination of price is an important subject of business economics. The success of the firm depends on the pricing decisions. Under this depends on the price policies in different formats of the markets. Under this, price policies and practices are studied in different forms of markets. The study of price forecasting is also a part of this. Differential pricing and various types of discount schemes also come under pricing policy and practice. The short term and long term pricing policies of the firm are also studied in this.
4. Profit Management – Business firms are established with the aim of earning profit. In the long run, the success of the firm is measured on the basis of profit, profit depends on revenue and costs. Costs and revenues are affected by a number of factors, some of which are internal to the firm and some are external. If the firm has accurate knowledge of these factors about the future, then profit analysis is very simple. But the firm operates on various estimates and expectations in an environment of uncertainty. Therefore, profit planning and management is an important and complex task of business economics. Under this, profit related concepts, profit planning, profit planning methods, profit measurement and cost control are studied.
5. Sales Promotion and Strategy Creation – A business management has to pay enough attention to sales strategy creation. Selling costs depend on sales strategy design. The manager has to see how much should be spent on sales promotion, what should be the quantity, size and type of advertisement. In business economics, the study of sales costs, sales promotion plans and sales strategy design and arrangement has to be done.
6. Cost Analysis – An important function of the managers is to explain and control the costs in order to maximize the profits of the firm. There are many types of costs, such as marginal cost, variable cost, fixed cost, etc. Only by reducing these various costs, more profit can be earned. Costs can be reduced only when search and research work is done in relation to the trend of costs and the factors affecting them. Many times the managers do not have the knowledge of all the elements affecting the costs or the managers do not have control over them.
7. Decision theory under uncertainty – Managers have to take many decisions in an environment of uncertainty, such as uncertainty of demand, uncertainty of cost, uncertainty of capital etc. Due to these uncertainties, the decision process. has become more complex. Several statistical and econometric methods have been developed for decision making under uncertainty. The tools of economic analysis are being refined in such a way that keeping in mind the uncertainties, rational and scientific basis can be provided to the decision making process.
8. Production Planning and Management – Every firm is engaged in a particular production work, so it has to do production planning and management. The firm has to make profitable decisions keeping in mind its resources and the things to be produced from them. Which of your resources should be used in the production of which item in what quantity so that the firm can get maximum production at minimum cost. Managers should have proper knowledge of the production function which explains the mutual physical relationship between the inputs and outputs. Production function is studied in business economics.

1. Meaning – Economics means a science in which it is decided that how to use our time and our power and wealth and how to spend our money? While business economics includes that part of economics which is called the theory of the firm and which can be quite helpful in decision making of the businessman.
2. Nature – This is the economics of the nature of both the individual and the collective. Therefore, in this, a comprehensive study of the economic activities of the firm, industry and the entire economy can be done. Whereas business economics is micro in nature. Therefore, the economic activities of a particular firm are studied under it.
3. Area – The area of ​​economics is more extensive and comprehensive because under it not only a particular firm but all the economic problems of consumption, production, exchange and distribution etc. are studied in economics. While the field of business economics is comparatively limited because under it only problems related to production and exchange of a firm are studied.
4. Basis of analysis – The rendering of economic principles in economics is often based on many assumptions and exceptions. While in this the assumptions of economics are analyzed after giving a practical form.
5. Nature of Science – The nature of economics is that of Ideal Science as well as Real Science. Whereas the nature of business economics is only ideal science.
6. Methodology – It reviews some general economic events of the past, then formulates general policies. Whereas business economics studies the practical aspect of economic phenomena.
7. Approach – The approach of economics is descriptive. While its approach is instructive (Perspective).
8. Aspect – Economics studies the theoretical aspect of economic events. Whereas business economics studies the practical aspect of economic phenomena.
9. Analysis of problems – In economics, the economic problems of both the firm and the human being are analysed. While under this only the problems of a particular firm are analyzed, not the human being.
10. Application of principles – Pure economic principles are used in this to solve the problems of the firm. While traditional economic principles are used under business economics.